A $40-Billion Scandal With a Capital D

By

Dan Gainor

June 7, 2006 - 2:00pm

When most people hear the word Enron, they mentally complete the
phrase by adding the word scandal. As reporter Lester Holt of
NBCs Today put it in a January 1 story, Enron has been the
poster child, if you will, of corporate scandals.

It isnt the only one, though. Theres $40-billion
scandal with most of the same elements even connection to
prominent politicians. Just dont expect to see much about it on TV.
After all, the top people involved here are Democrats.

Welcome to Fannie Mae, the government-sponsored
mortgage giant. As part of a scandal thats been running nearly two
years, Fannie Mae has misstated earnings to the tune of $10.8
billion.

Thats some tune.

So far, the Fannie fiasco has cost Chief Executive
Officer Franklin Raines and several other top executives their jobs.
The stock has dropped from nearly $80 a share to around $50
roughly $30 billion in lost value. And the company recently settled
with the federal government and agreed to pay $400 million in fines,
stemming from allegations that the firm fiddled with the books to
ensure bigwigs got performance bonuses.

To top it off, the Fannie Mae leadership was quite
well-connected in D.C., especially to the Democratic Party. The May
23 Washington Post made this all clear in black and white. The front
page of that days Business section showed how James A. Johnson, a
former campaign manager for Walter Mondales presidential run, had
created a political powerhouse.

That story had a photo of Johnson, who had been
chairman and chief executive of Fannie Mae, flanked by two other
photos both other prominent Democrats. On one side was Raines, a
former head of the Office of Management and Budget under Clinton. On
the other was Clinton Deputy Attorney General Jamie Gorelick.

While the rest of the graphic listed other prominent
Democrats and Republicans, the titanic captains at Fannie Mae were
clearly Democrats.

Sounds like an amazing political scandal. Certainly,
newspapers and business magazines think so. The Wall Street Journal,
New York Times and Washington Post have done hundreds of stories on
the Fannie fiasco. An Oct. 4, 2004, Wall Street Journal editorial
summed up the crisis: The company was cooking the books. Big time.

Then theres network news. When the Business & Media
Institute looked into this last year, we found almost no network
coverage of the scandal. Instead, ABC, CBS, NBC and CNN all focused
hours and hours on the damage done at Enron.

Since last years study period ended on Feb. 1, 2005,
CBS has reported on the Fannie Mae scandal just twice both the
same day of the $400-million settlement. NBC has mentioned it just
once and ABC has been completely out to lunch. CNN has mentioned it
just six times a decline in its coverage.

None of the stories discussed the roughly $30 billion
in lost value to stockholders since this scandal has hit the news.
None of them mentioned the fact that this was a Democratic scandal.

When it came to Enron, the media did everything they
could to link it to Republicans or President George W. Bush. Back in
January, Anne Thompson of NBCs Today showed how it was done. He
was Houstons number one corporate citizen who morphed into public
enemy number one when Enron disintegrated: Ken Lay, friend of
presidents past and present. Kenny Boy, President Bush called him, a
powerful, influential man with a photograph album of famous
figures.

Being connected to President Bush was newsworthy. Being
connected to President Clinton apparently was not.

In a Dec. 28, 2004, interview on CNNs Newsnight With
Aaron Brown, Newsweek reporter Charles Gasparino, who was covering
the scandal, said he thought reporters ignored it because its a
politically correct company. He meant that Fannie Mae helped
provide mortgages for the poor, something liberal journalists
like.

Much like Fannie Mae, perhaps Gasparino underreported
the real results. It seems that there was something else about the
organization that network media types love the big (D) after so
many of the prominent names. How else can you explain a scandal that
equals the wealth of the second-richest man in the country, Warren
Buffett, but gets less network coverage than skateboarding during
the same time period?

Theres still time for the networks to do their job.

According to a June 12 BusinessWeek article, Fannie
didnt admit or deny any wrongdoing in its $400-million settlement
agreement. After $10.8 billion in misstated earnings, nearly $30
billion in lost market value and a $400-million settlement, no
admission from the firm is necessary. What we do need is an
admission from the networks that they have missed a huge story and
a good reason why.

Dan Gainor is a career journalist and The Boone Pickens Free
Market Fellow. He is also director of the Media Research Centers
Business & Media Institute
www.businessandmedia.org [1].

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